DAY & ZIMMERMANN, INC. v. BLOCKED IRON CORP. OF AM

September 22, 1960

DAY & ZIMMERMANN, INC.
v.
BLOCKED IRON CORPORATION OF AMERICA

The opinion of the court was delivered by: KIRKPATRICK

The plaintiff is a corporation engaged in the designing, engineering and construction of industrial plants of various kinds. The defendant in 1955 was the owner of a new and recently patented process, described as the 'recrystallized limestone' process, for making blocked iron. Blocked iron consists of iron ore fines molded into cylindrical blocks for use in open hearth steel furnaces and hardened to prevent their breaking up when handled, transported and stockpiled.

On December 12, 1955, the plaintiff and the defendant, who will be called 'D& Z' and 'BICOA' respectively, in this opinion, entered into a contract the subject of which was a plant for the production of blocked iron to be erected at Philadelphia.

Work was begun in May, 1956, and continued until the latter part of November of that year at which time the plant, having been fully constructed with all equipment installed, was put into operation. Owing to unsatisfactory performance of some of the equipment, notably a drying oven, production was disappointing, and, from the attempted start-up until August of 1957, D&Z, at BICOA's request, continued on the job, most of its work being in connection with remedying deficiencies in the equipment and making changes and improvements in details of operation.

The contract provided for payments to be made to D&Z on monthly invoices covering expenditures made and costs incurred by it, as well as a proportionate part of its compensation.

Beginning in December, 1956, BICOA ceased making any payments to D&Z although the latter continued to submit regular monthly invoices. On August 1, 1957, D& Z, having notified BICOA that the step it was taking was due to nonpayment of its charges, withdrew its men from the job. After that time some further improvements and changes, amounting to about $ 20,000, were made by other contractors employed by BICOA.

The plant was operated intermittently during the first half of 1957. After July 4 it began to produce in substantial quantities. It has been operating in commercial production since December, 1957, and, for at least the past two years, on a very profitable basis.

This action was begun by D&Z's suing for a balance claimed, now fixed by it at $ 193,859.01. BICOA denied liability on the ground of breach of contract by D&Z and counterclaimed for damages resulting from D&Z's alleged default. The case was tried to the Court without a jury. By an order under F.R.Civ.P. Rule 42(b), 28 U.S.C.A., the Court directed that the trial of the issue of BICOA's damages, if such trial should be justified, be deferred until a separate trial and final determination by the trial court of all other issues had been had.

The record is voluminous -- nearly 3,000 pages of testimony and several thousand more of depositions -- but, at the risk of over-simplification, I think the issues can be stated as follows: What were D&Z's obligations under the contract? Did D&Z fail to perform its obligations? Was BICOA justified in withholding payments from D&Z and was D&Z within its rights in quitting the job on that account?

D&Z's contention is that its sole obligation was to provide engineering and other services in connection with the design and construction of the plant, that the contract was, and remained without change, a cost plus contract with the usual provisions for reimbursing D&Z for all costs and expenditures which it might incur and for payment of a fixed fee (in this case originally $ 37,500) but with no promise that the work would be completed by any fixed time and no guarantee of results or of maximum cost and that D&Z was not obligated to design the equipment or to check the design of the vendors.

BICOA's position is that D&Z agreed to construct the plant, with full responsibility for everything in it, and, in effect, guaranteed that as soon as completed it would be capable of producing 360,000
*fn1"
long tons of blocked iron per year, that, whatever the original term as to cost may have been, that feature of the contract was converted by a letter written in July of 1956 into a promise by D&Z that the total maximum cost of the plant would not be in excess of $ 1,165,000 and that, although no stated date for completion was specified in the contract, d,&Z was in default for not having had the plant completed and ready for 'normal' production by November 30, 1956.

The contract contains six pages of part printed and part typewritten matter and is too lengthy to be set out at this point. A copy is annexed to this opinion.

In construing this contract I am unable to accept in full either party's view of it, although I think that D&Z's comes much closer to its real intendment than BICOA's. When the entire contract is read and all of its terms including the modifications of it considered, it becomes quite clear that, while it obligates D&Z to erect the building and to locate and install in it the various pieces of equipment, as to all other matters it is a contract for services in connection with which D&Z's obligation was to render engineering and other cognate services with reasonable professional skill.

BICOA's argument is largely tied to the words 'We hereby propose to design and construct a plant * * * with a rated capacity of 250,000 long tons per year'.

Unquestionably D&Z agreed not only to design the building but to erect
*fn2"
it and install the equipment. It is equally clear that it did not agree to construct, i.e., manufacture, the equipment nor to design it. An agreement to design and construct a plant does not include the designing of the complicated and special purpose machinery which a plant of this kind would need. Besides, the contract contemplates that the equipment will be purchased from manufacturers ('vendors') and explicitly sets forth D&Z's obligations in respect of it, namely, to recommend its 'type and character' and to prepare working drawings and specifications 'necessary for obtaining bids'.
*fn3"

I cannot agree, as argued by BICOA, that the reference to the proposed plant's 'rated capacity' imports a guarantee that the plant, when operated, would actually produce that much, nor that BICOA so understood it. BICOA's argument in support of its interpretation would be more persuasive had the parties used the word 'capacity' unmodified. Parties to a contract are not presumed to have inserted meaningless words into it, and, if 'rated capacity' means no more or less than 'capacity', as BICOA in substance contends, the parties to this contract would have done just that.

The fact is that it is hardly possible to write a contract for services without some reference to or description of the thing or project in connection with which the services are to be performed and the reference to the size of the plant, its expected or desired production, in this contract is a natural and normal way of identifying and describing the work in connection with which D&Z's services are to be performed.

Even if it be assumed that 'rated capacity' was intended to be contractual rather than merely descriptive of the project, the tonnage mentioned was an estimate. The intent of the parties in this respect appears if one reads the end of the sentence in which it is used ('as set forth in letter dated November 11, 1955 addressed to Leonard J. Buck, Inc.') and then turns to the letter referred to and observes that it says 'The estimated capacity of this plant properly managed is 255,000 long tons per year * * *.'

It is also significant that D&Z agreed to execute the construction work and install the equipment only 'to the extent required by you'. This left BICOA entirely free to do as much of this part of the work as it wanted to, and it is hard to believe that anyone would think that a contractor would assume full responsibility for the result of work any part of which the owner, if he so chose, could take out of the contractor's hands and do himself or give to another contractor.

&nbsp;BICOA relies heavily on the case of Wheeling Stamping Co. v. Birdsboro Steel Foundry & Machine Co., 3 Cir., 245 F.2d 752, but the situation in that case was quite different from that in the present one. In the Birdsboro case the whole basis of the decision was a fact finding (not seriously challenged) that a manufacturer had promised a certain result, namely, that a machine to be built by it would be 'commercially operable'. The only question was what 'commercially operable' meant. In the present case, the promise is to render services in connection with the construction ...

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